Written by Jose Jaffy Y. Azarraga, 18 April 2008
Hardest hit by the recent spate of rising prices are those below the poverty line, those who spend more than half of their disposable income on basic commodities such as rice, pan de sal, canned goods, cooking oil and other necessities. It is even more lamentable if seen from the perspective that the poor bear a disproportionate tax burden on such basic necessities of life.
While it is true the poorer segments of society, especially the marginal income earners, are spared from direct taxation, particularly the income tax, under Revenue Regulations No. 11-2000, this does not mean they are exempt from indirect taxes, particularly the value-added tax (VAT), excise taxes and withholding taxes.
In Contex vs. Commissioner, the Supreme Court clarified that "unlike a direct tax, such as the income tax, which primarily taxes an individual’s ability to pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax on consumption of goods, services, or certain transactions involving the same. The VAT, thus, forms a substantial portion of consumer expenditures."
Hence, indirect taxes, such as VAT, being a tax on consumption, is actually borne by the individual consumer, regardless of his or her station in life. Certain exemptions have been retained with respect to food products in their original state, that is, those that have gone simple processes of preparation or preservation such as freezing, drying, salting, broiling, roasting, smoking, stripping, polishing or husking. However, most of the inputs used in the preparation of these food products even in their original state have been subjected to several taxes at various stages.
Thus, even the most basic staple, rice, is not spared from the cascading effect of taxes, which occurs when tax is imposed upon previously imposed taxes comprising the price of the commodity. Inputs to rice production, for instance, fuel, except for diesel, kerosene and liquefied petroleum gas, which are subjected to zero excise tax rates under the new VAT law, are subjected first to the excise tax upon removal from the depot, and later on, again subjected to VAT upon sale by gas stations and other retailers.
Rice farmers relying on mechanized machinery to till, harvest, and eventually transport rice, as well as the rice traders and distributors, cannot recover input taxes on fuel and services subject to VAT, and charge the same as part of the costs of the palay/rice sold, hence further increasing the tax component of the price of rice.
Worse, other processed basic commodities such as canned goods, pan de sal/bakery products, cooking oil including non-food essentials such as detergent, clothing and the like, fall squarely within the scope of the VAT. This means that the VAT on these items is effectively absorbed by consumers upon their sale by the grocery, supermarket or retailer.
Consequently, the marginalized, comprising perhaps 80% of our population, end up paying a huge chunk of the nation’s taxes through indirect taxation of their consumption. Many are not able to shoulder the burden of providing for their families’ needs and end up borrowing for food, or worse, forced to commit crime in desperation.
The tax burden is further compounded by the current rice shortage crisis. It is pitiful that the Philippines, once self-sufficient in rice, is now listed by the US Department of Agriculture as the world’s top importer of milled rice for 2007, ahead of Nigeria, Indonesia and Bangladesh.
The President had to practically beg Thailand to allow continued importation, while Vietnam, China, India and other rice-exporting nations are limiting exports in a bid to secure their own populace, further exacerbating the shortage in the world market. Evidently, we can no longer rely on other nations to allay the food shortage that threatens our nation’s stability.
Although the government is now taking steps to ease the rice supply shortage by importing rice and taking the punitive actions against hoarders , these have been criticized as being too late, or as overreaction bordering on threats and coercion, which may worsen the situation by damaging business confidence.
Concrete steps instead should be taken to reverse myopic policies, political neglect or even indiscriminate corruption that have resulted in critical loss of production over the years.
Over the past 20 years or so, the country lost nearly half of its irrigated land to rapid urban development. The agricultural sector has also lost much ground to imports due to high cost of production, as well as competition with other nations’ highly subsidized agricultural products while ours remain woefully undercapitalized and overtaxed.
The crisis may yet to be averted if the government is able to adopt crucial policies that will ameliorate the burden on the marginalized consumers and improve the plight of the producers — farmers — who after all are the real heroes in this struggle for self-sufficiency.
Otherwise, the time is short, and the stakes are high, not only for the marginalized consumers and farmers, but for all of us stakeholders in this much-vaunted economic recovery, which can be lost all too soon, too early.
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